Government’s Intervention when Market Failure occurs
Government’s Intervention when Market Failure occurs Market failure occurs base on few reasons - public goods, positive externalities, negative externalities and regulation of monopoly power (Economics Help 2012). Government is not always being revile when intervening the market, sometimes there is a must for government to get involve, when free market itself are not working optimally (Tutor 2 u 2014). The arguments for government intervention are, greater equality, market failure and macroeconomic intervention (Economics Help 2012). Market failure is a term to indicate the markets do not achieve the market efficiency, which also mean it may not constantly allocate scarce resources efficiently in a way that achieves the highest total social welfare (Tutor 2 u 2014). To solve market failure, government have to create taxes and subsidies.
Public Goods Public good are normally under-provided in the free market system because of its feature of non-rivalry and non-excludability (Economics Help 2012). Non-rivalry means the amount available for others will not be reduced when a good is consumed. Where the meaning of non-excludability is without it being possible for others to enjoy, it is not possible to provide a good. ‘Free Rider Problem’ is the main issue that public good facing, this define as it is not possible to stop others to use the goods once its provided, even other people never pay for it. Hence, there is no incentive for people who use to pay for the goods, this is because they can consume it even they are not paying for it. The outcomes of these issues will cause no goods provided, thus there will be no social efficiency. Base on that there is a need for the government to provide the public goods (Economics Help 2012).
Positive Externalities Subsidies is given to firm to pay part of the cost for them. This should encourage more consumption when the selling price fall, furthermore benefits the social with positive externalities (Economics Help
Public Goods Public good are normally under-provided in the free market system because of its feature of non-rivalry and non-excludability (Economics Help 2012). Non-rivalry means the amount available for others will not be reduced when a good is consumed. Where the meaning of non-excludability is without it being possible for others to enjoy, it is not possible to provide a good. ‘Free Rider Problem’ is the main issue that public good facing, this define as it is not possible to stop others to use the goods once its provided, even other people never pay for it. Hence, there is no incentive for people who use to pay for the goods, this is because they can consume it even they are not paying for it. The outcomes of these issues will cause no goods provided, thus there will be no social efficiency. Base on that there is a need for the government to provide the public goods (Economics Help 2012).
Positive Externalities Subsidies is given to firm to pay part of the cost for them. This should encourage more consumption when the selling price fall, furthermore benefits the social with positive externalities (Economics Help
References: Economics Help 2012, Should the government intervene in the economy? Available from: . [26 February 2014]. BBC News Asia-pacific 2010, Japan imposes 40% cigarette tax increase. Available from: . [27 February 2014]. Tutor 2 u 2014, Economics of Market Failure. Available from: . [27 February 2014]. The Malaysia Insider, For a healthier Malaysia, Health Minister says removal of sugar subsidy a “good move”. Available from: . [26 February 2014].